House of Commons - Health Inequalities

Health Inequalities - Health Committee Contents

4 Funding for health inequalities

80. This chapter explores the funding available to tackle health inequalities. It considers

how policies which redistribute health resources towards those in most need may in fact run counter to the NICE approach which seeks to prioritise cost-effectiveness.
how PCTs are funded to tackle health inequalities, including both the resource allocation formula, and other sources of funding, and, finally
how PCTs spend their allocations to tackle health inequalities.

Finally, we look at:

potential solutions to some of these issues.

To what extent should health spending be redistributed to tackle health inequalities?

TENSIONS BETWEEN THE REDISTRIBUTIVE MODEL AND THE NICE APPROACH

81. There appears to be a significant tension between two different ways in which health spending is determined. On the one hand, the Department of Health aims to spend money on reducing health inequalities without regard to whether the money might be more cost-effectively spent in other ways. The resource allocation formula aims to direct resources to areas with the highest health need; in addition, money has been provided for specific initiatives to tackle health inequalities. On the other hand, the NICE methodology, which makes recommendations on whether certain treatments should be funded on the basis of their clinical and cost-effectiveness, is based upon calculations which take into account total health gain to the whole population, rather than to a specific, disadvantaged sector of society.

82. To set out for us the conflicts inherent between these approaches and the ethical dilemmas arising from these different ways of allocating health resources, we took oral evidence from an eminent philosopher and ethicist and two health economists.

83. To begin with we asked the witnesses about the legitimacy of redistributing health resources away from the health of the greatest number and the most effective interventions, specifically towards lower socio-economic groups. Peter Smith, Professor of Health Economics at the University of York responded that such a policy enjoyed public support:

We have done some research on what the public thinks about narrowing health inequalities. Although the public is quite split about this—some people really think the Health Service should just be about promoting health; others think its prime aim should be reducing health inequalities—on balance, they did support quite a lot of the NHS efforts going towards reducing health inequalities and they would be prepared to see some sacrifice of overall health gain to reduce those inequalities.[67]

84. However, 40% of the population included in Smith's research were not persuaded that traditional NHS activity should be sacrificed in order to address inequalities. Mark Sculpher, Professor of Health Economics at the University of York, argued that this was ultimately a political decision, but that explicitly recognising the trade off between these competing aims was crucial, as was providing sufficient evidence about that trade-off—who exactly are the winners and losers.[68]

85. When we asked the Secretary of State for Health how much he thought it was reasonable to spend on reducing health inequalities, he could not provide an answer, either in terms of a proportion, or an absolute amount:

I do not think I can answer that question in terms of an amount. It is just integral to everything you do in health. I think there was a time when there were pots of ring-fenced money labelled "health inequalities". There was a time when no one even worried about health inequalities, when it was not even on the agenda. But those times have gone. It is integral to everything we do.[69]

86. We were surprised and disappointed to receive so vague an answer to what appeared a pertinent question about such a high priority Government target. Nor did the Secretary of State for Health appear to see the tensions that exist between spending money to improve the health of the poorest, and spending to maximise the health of the whole population:

That balance is there, with everyone receiving money, because our aims are to improve the health of everybody in society and also to tackle health inequalities, so I cannot differentiate between the two.[70]

NICE AND HEALTH INEQUALITIES

87. John Harris, Professor of Bioethics at the University of Manchester, told us that in his view, the NICE approach, based on Quality-Adjusted Life Years (QALYs) was fundamentally flawed since it was impossible to state that a NICE-recommended treatment was more cost-effective than the treatment it was replacing:

The problem is that the Health Service cannot know where money saved on any particular application will be put. It is as likely to go on white lining the car park or, as I understand it, the tens of millions of pounds that are spent in the Health Service on paracetamol and laxatives, as on something that we, the community, would regard as a better use of that money. If rationing is inevitable, let us ration in some fair way but not dress it up as if we are somehow preserving the public purse for better uses … you have to look at the whole range of health care.[71]

88. Professor Sculpher agreed with Professor Harris on the importance of knowing more about what treatments and services are displaced by funding new NICE-recommended treatments. While Professor Sculpher did not think at the moment that the NICE technology appraisals that have been carried out to date had had a significant impact, either positive or negative, on health inequalities,[72] as the decisions had mostly been about end-of-life treatment for relatively rare conditions, he did think that there was the potential for NICE decisions to worsen health inequalities by displacing certain important services:

What we do have is anecdotal information that particular services in some areas, like the care of the elderly, the care of the mentally ill, may suffer as a result of funding the new technologies. We need to know a lot more about what is displaced, as I think this Committee itself has said in the past, as a result of NICE decisions.[73]

89. We questioned the witnesses about the introduction of "equity weighting" into the QALY process. According to Professor Sculpher, there is currently no set of weights that could be used, and developing them would be difficult and highly contentious. [668]. However, Professor Smith did recommend one positive step towards ensuring NICE guidance did not have a detrimental impact on inequalities, which would be to research the cost for PCTs of implementing NICE guidance:

I think one thing we could do is to cost up for every PCT how much the implementation of NICE guidelines is. My guess would be that it is quite variable between different PCTs, how much they are going to have to spend on NICE guidelines, mandatory work. That being the case, this has some relevance to your inquiry, because it implies an inequality in the residual part of the budget if the guidelines are taking up different proportions of the budget in different PCTs. I think that could be done. I think that it is feasible, to make some stab at costing out how much the guidelines would cost each PCT and then seeing what the residual looks like across PCTs.[74]

How PCTs are funded to tackle health inequalities

THE RESOURCE ALLOCATION FORMULA

90. The main source of funding for health services, and the most important element of funding for health inequalities, is the allocation which PCTs receive each year which is determined by the Department of Health's resource allocation formula.

91. The Government has made a commitment to tackling health inequalities by shifting NHS resources which would otherwise be spent on general services and interventions which are of benefit to the entire population towards those people who have the worst health outcomes. The funding formula which is used by the Department of Health to allocate resources to PCTs is 'weighted' to allow for the extra health needs faced by disadvantaged areas, as the Department of Health described:

The Department of Health resource allocation seeks to ensure there is sufficient funding to provide equal access for equal need in all parts of the country, and to reduce avoidable health inequalities. Allocations are made to PCTs on the basis of the relative needs of their populations through a weighted capitation formula. This formula is weighted to include each PCT's "crude" population according to their relative need (age, and additional [not clear what 'additional is—define) need) for healthcare and the unavoidable geographical differences in the cost of providing healthcare (market forces factor).

The development of the weighted capitation formula is continuously overseen by the independent Advisory Committee on Resource Allocation (ACRA). ACRA makes recommendations to Ministers on possible changes to the formula, prior to each round of PCT revenue allocations.[75]

92. The Secretary of State for Health gave us some more detailed figures:

In terms of what we spend on health per person, it now stands, on average, at £1,449. It was £426 in 1997. In a deprived area like Tower Hamlets it will be nearer to £2,000. That balance is there, with everyone receiving money, because our aims are to improve.[76]

93. The table below shows for 2009-10, in the first column, the actual allocations per head which a number of PCTs are to receive; in the second, the target amount they ought to receive according to their level of need and, in the third, notional figures, showing 'weighted capitation target per weighted head'.[77]

PCT Actual allocations per head (£)

(i.e. the amount each PCT receives)
Weighted capitation target per unweighted head £

(i.e. the amount PCT ought to receive -known as 'the target')
Weighted capitation target per weighted head £

(this figure which is weighted according to need is in fact close to the average)

Bedfordshire PCT 1,293 1,340 1,537

Mid Essex PCT 1,269 1,316 1,535

Kingston PCT 1,414 1,242 1,535

Knowsley 2,007 2,020 1,535

City and Hackney Teaching PCT 2,136 2,009 1,535

Tower Hamlets 2,014 1,917 1,535

Source: Department of Health

As this table shows City and Hackney receives 68% per head more than Mid-Essex, which receives the lowest per capita funding.

94. Professor Smith told us that the resource allocation formula "does a pretty good job at being even-handed and systematic in splitting up the cake between the PCTs".[78] The one area he felt in major need of improvement was data about relative population needs to inform the resource allocation process:

The big scope for improvement is in improving information. At the moment, the researchers who developed the formulae are very hamstrung by the limited data they have available. In other countries which have universal electronic records of their citizens, they can work out which citizens should be allocated more expected finance than others, and so, from an individual perspective, they can create, if you like, almost an insurance premium. [79]

95. Professor Smith did caution that allocations although perhaps fair are not necessarily sufficient to meet need:

In common with almost all resource allocation methods, the English funding formula effectively gives PCTs the amount of money they would need if—given their local characteristics—they were to deliver the national average package of health care to their citizens, using national average levels of efficiency. In short, local allocations reflect the current national pattern of health care being delivered on the ground. Current resource allocation methods are therefore intrinsically conservative.[80]

96. In addition to this, not all areas currently receive what they should receive according to the resource allocation formula. This is because historically many areas have received less funding than they need, but rather than taking away large amounts of funding from some over-funded areas to compensate more needy areas, the Government has adopted a more gradual approach to shifting resources over a number of years, meaning that some PCTs are still receiving funding below their 'target' amounts. This means that these areas, some of which are spearhead areas, are essentially carrying forward a 'backlog' of under-resourcing, meaning services have been under-invested over the course of many years. London PCTs are most likely to be above target in 2009-10. Westminster PCT will be 22.3% above target, receiving £1,776 per head when its target is £1,452. More deprived London PCTs are also above target; Islington is to receive £2,143 per head whereas its target is £1,913. Bassetlaw is furthest from target at -8.6%, receiving £1,529 against a target of £1,673. Outside London, some deprived areas such as Liverpool are above target (by 1.2%) and others, like Knowsley below (-0.6%). Some of the areas with the lowest per capita allocations such as Mid-Essex (£1,269) are below target, others above, for example Wiltshire (£1,336) are above.[81]

97. The Secretary of State told us that in future the resource allocation would be determined using the more subtle tool of "person-based allocation". Such formulae are in use in other countries (including the US, Germany and the Netherlands), and rely on 'diagnoses' of individuals, based on inpatient and outpatient encounters and prescribing data. Thus comparative use of services is used as a proxy for "relative need". Professor Smith, who is currently involved in a scoping study for a person-based allocation formula for use in this country, suggested that it would be some time before it could be introduced but told us that as an interim measure it might be feasible to devise more specific allocations based only on hospital data, but cautioned that NHS diagnosic coding in hospitals is often poor quality, and that we are some way off having adequate GP activity data, although prescribing data in primary care was good.[82]

PCT spending on tackling health inequalities

ALLOCATION OF FUNDS BY PCTS

98. Several witnesses were critical of the failure of PCTs which received a large allocation under the funding formula to direct their funds to those in greatest need. Dr Dixon argued that programme budgeting data, which shows the breakdown by PCT on how money is spent on different areas including mental health, cancer, coronary heart disease and public health, showed that there was "very little correlation between what PCTs are spending on particular areas of health care and the needs of the population".[83]

CHOOSING HEALTH MONEY

99. PCTs failure to spend money on preventive measures to reduce inequalities is seen by what happened to funds promised by the Department of Health in 2004 in its White Paper on public health, Choosing Health.

100. However, several submissions argued that money promised to tackle the causes of inequalities, under the auspices of the Choosing Health initiative, had not materialised:

Choosing Health in England set out the government's commitment—including financial—to tackling the major causes and consequences of inequalities. Yet the financial crisis which engulfed the NHS in 2006-07 has seen the money promised to the NHS under Choosing Health subsumed into general PCT budgets.[84]

This view was reiterated by Dr Dixon:

There were additional monies supposed to be allocated as part of the Choosing Health White Paper but these were not earmarked funds and there is clear evidence that quite a lot of that money was spent on other priorities and was not spent on public health …[85]

Professor Alan Maryon-Davis, President of the Faculty of Public Health, told us:

The figures we have were based on the figures of the Choosing Health investments of two or three years ago now, where, of course, if you remember, there was a crisis in the NHS, there was a massive deficit, and there was a bit of panic in the system. Inevitably, the first things to get chopped, to put it bluntly, are these preventive health promotion soft targets really. You can wave the shroud around heart disease or heart disease services or cancer services or any kind of patient care. It is more difficult to wave the shroud in terms of prevention and health promotion and these initiatives tend to get the chop. We do have hard figures that show a lot of the Choosing Health monies, in particular, simply disappeared.[86]

COST EFFECTIVENESS

101. The problems relating to the design and evaluation of policies to tackle health inequalities, which we discussed in the last chapter, are particularly pertinent to the failure of many PCTs to spend more on tackling health inequalities. Professor Smith told us that a major reason that PCTs did not spend more in this area was simply that they did not know how best to spend the money. This was especially the case when the alternative was expenditure on other priority areas where sound evidence of value for money interventions may exist:

More generally, it is not at all clear how PCTs should best spend any 'health inequalities adjustment' funding. The most immediate instinct might be to seek to improve access to health services for disadvantaged groups. However, this may not be the most efficient use of resources, especially if the main causes of health inequalities are mainly due to personal characteristics (such as lifestyle) rather than access problems. If so, the emphasis might shift to health promotion strategies for improving the health of disadvantaged groups. Alternatively (though this may be difficult to implement) policy might consider giving privileged access to health care for disadvantaged groups.[87]

SOLUTIONS

102. Professor Julian Le Grand, Chair of Health England, which is currently preparing a ten-year plan for preventive health spending, told us that he supported the re-introduction of ring-fencing to prevent public health monies from being siphoned into other aspects of NHS services:

I am becoming increasingly of the view that you have to either ring-fence some form of public health spending or engage in an explicit incentive mechanism to encourage PCTs or local authorities to spend on public health measures. We have been looking at ideas such as matching grants, for which the Department of Health holds back some money and then offers a matching grant to PCTs to engage in public health programmes of various kinds. I think we have to consider that kind of thing; otherwise, public health monies will always get swallowed up by the acute sector in a way that has happened historically.[88]

103. Kaye Wellings, Professor of Sexual and Reproductive Health at the London School of Hygiene and Tropical Medicine and author of the national evaluation of the Teenage Pregnancy Strategy, which has arguably had more success in meeting its objectives than efforts to reduce health inequalities (achieving a 15% reduction in under 16 conceptions during the same period that health inequalities have increased), agreed that initially at least, ring-fencing was important:

I think it is right that the teenage pregnancy strategy had four or five years of uninterrupted ring-fencing and that really motivated people to get all the targets, the aims and the goals into Local Area Agreements, into the Strategic Health Authority plans, they have been very successful in that.[89]

104. Dr Jacky Chambers, Director of Public Health at Heart of Birmingham PCT, argued that PCTs' inability to carry forward surpluses, and their one-yearly financial cycle, made it much more difficult to invest in long-term interventions for tackling health inequalities. In contrast, foundation trusts and local authorities do not face such constraints and are able to retain surpluses, and have three-year funding cycles.[90]

Conclusion

105. Trade offs exist between redistribution of health resources to tackle health inequalities—as happens through the formula which the Department of Health uses to distribute funds to PCTs, and the NICE model, which influences PCTs' spending by recommending certain treatments and interventions on the grounds of cost-effectiveness on a population basis. These trade offs have never been explicitly articulated and examined and we recommend that they should be. Professor John Harris said "if rationing is inevitable, let us ration in some fair way … you have to look at the whole range of health care". How far the majority of the population is willing to forgo health care to switch resources to the most needy is a moral question which requires a wide debate.

106. As we have stated in previous reports, more needs to be known about the relative cost effectiveness of treatments and services that are displaced to fund the new treatments recommended by NICE. A first step in this process would be to research the cost of implementing NICE guidance in each PCT in England—which we recommend the Government should fund immediately.

107. The resource allocation model used by the Government seeks to equalise the funding available to PCTs in relation to proxies for need. It has had a major effect on the funding PCTs receive; the neediest PCTs receive almost 70% more money per head than the least needy. However, many PCTs have not yet received their full needs-based allocations. The Government must move more quickly to ensure PCTs receive their real target allocations.

108. Furthermore, money that was intended to be spent on preventive health promotion programmes which may have reduced health inequalities has instead been spent by PCTs on the acute sector in times of financial difficulty.

109. Suggestions for protecting the NHS public health budget included a return to ring fencing, or relocation of public health budgets in local authorities rather than PCTs. We also heard that PCTs' current funding constraints, including one-year financial cycles and inability to retain and invest surpluses, should be removed in the interests of enabling more long-term investment in health inequalities. We did not receive enough evidence on these specific points to be able to recommend them.

110. The Government has not made even basic calculations about how much has been spent on tackling health inequalities. We recommend that the Department of Health find out both how far PCTs spend the funds they received under the resource allocation formula on tackling health inequalities and what funds specifically allocated for health inequalities initiatives are spent on, and the health outcomes achieved. As a first step the Department should commission an in-depth study of health inequalities funding in a small sample of PCTs.

111. PCTs do not have adequate knowledge about how money should be spent to best tackle health inequalities, and we recommend investment in the systematic evaluation of policy initiatives with a focus on relative cost effectiveness, following the principles set out in chapter three, to inform these difficult choices.

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